FRANkLiN TEMPLETON INVESTMENT FUNDS - Citibank

PROSPECTUS OF FRANKLIN TEMPLETON INVESTMENT FUNDS
followed in determining that one currency moves in a substantially similar manner to another
currency include the following: i) the correlation of one currency to another currency is proven
over a significant period of time to be over 85%; ii) the two currencies are, by explicit government
policy, scheduled to participate in European Monetary Union on a set future date (which would
include using the Euro itself as a proxy for hedging bond positions denominated in other currencies
scheduled to become part of the Euro on a set future date); and iii) the currency used as the hedging
vehicle against the other currency is part of a currency basket against which the central bank for
that other currency explicitly manages its currency within a band or corridor that is either stable
or sloping at a predetermined rate.
• cross-hedging, i.e. a technique whereby a Fund sells a currency to which it is exposed and purchases
more of another currency to which the Fund may also be exposed, the level of the base currency
being left unchanged, provided however that all such currencies are currencies of the countries
which are at that time within the Fund’s benchmark or investment policy and the technique is
used as an efficient method to gain the desired currency and asset exposures.
• anticipatory hedging, i.e. a technique whereby the decision to take a position on a given currency
and the decision to have some securities held in a Fund’s portfolio denominated in that currency
are separate, provided however that the currency which is bought in anticipation of a later purchase
of underlying portfolio securities is a currency associated with those countries which are within
the Fund’s benchmark or investment policy.
d) Interest Rate Transactions
In order to hedge against interest rate fluctuations, the Company may sell interest rate futures or
write call options or purchase put options on interest rates or enter into interest rate swaps provided:
(i)
(ii)
The commitments deriving therefrom do not exceed the value of the relevant assets to be
hedged; and
The total amount of such transactions does not exceed the level necessary to cover the risk of
the fluctuation of the value of the assets concerned.
Such contracts or options must be denominated in the currencies in which the assets of such Fund
are denominated, or in currencies which are likely to fluctuate in a similar manner and must be
either listed on an exchange or dealt in on a Regulated Market.
For the purpose of efficient portfolio management, the Company may also enter into interest rate
futures purchase contracts or acquire call and put options on interest rate futures, mainly in order
to facilitate changes in the allocation of the assets of a Portfolio between shorter or longer-term
markets, in anticipation of a significant market sector advance, or to give a longer-term exposure
to short-term investments, provided always that sufficient cash, short dated debt securities or
instruments or securities to be disposed of at a predetermined value exist to match the underlying
exposure of both such futures positions and the value of the underlying securities included in call
options on interest rate futures acquired for the same purpose and for the same Fund;
provided however that:
(i)
(ii)
All such futures and options on interest rate futures must be either listed on an exchange or
dealt in on a Regulated Market, whereas interest rate swap transactions may be entered into
privately by agreement with a highly rated financial institution specialised in this type of
transaction; and
The aggregate acquisition cost (in terms of premium paid) chargeable to a Fund in respect of
options on securities and of all options acquired for purposes other than hedging, shall not
exceed 15% of the net asset value of such Fund.
e) Dealing in Financial and Index Futures
78 Franklin Templeton Investment Funds